Conflict Palm Oil and PepsiCo’s Ethical Dilemma
In September 2015, US-based consumer food giant, PepsiCo Inc. (PepsiCo), was dropped from the
annual Dow Jones Sustainability Indices (DJSI)1 as, according to some reports, the company’s
sustainability performance had failed to make the grade. PepsiCo was singled out by a number of
environmental groups for its continued use of large quantities of Conflict Palm Oil,2 the production of
which was responsible for large-scale destruction of rainforests, human rights violations, and climate
pollution in tropical countries like Indonesia where palm oil was produced. The groups criticized
PepsiCo for not having a robust sustainable palm oil policy and for not acknowledging the damage its
supply chain had caused in countries such as Indonesia and Malaysia. According to an international
environmental and human rights organization, the Rainforest Action Network (RAN), “What Pepsi does
has a huge impact on the climate, the rainforests of Southeast Asia, and the people and animals that rely
on these forests for their lives and livelihoods. The company is a major Conflict Palm Oil laggard. It is
dragging its feet and is refusing to admit it even has a problem. It could rise above its competitors and
do the right thing, but, instead, it has relied on half measures and a commitment with gaps big enough
to drive a bulldozer through.”
Palm oil obtained from the fruit of the oil palm tree and the most widely used vegetable oil in the world,
went into the processing of a wide array of food and non-food products. Over the years, the demand for
palm oil had increased sharply as it was one of the cheapest vegetable oils on the global market with no
trans fats. The rising demand led to large-scale deforestation across South East Asia with rainforests
being cleared to make way for palm oil plantations. This added to global warming emissions and
resulted in a shrinking of the habitat of many already threatened species.
On the heels of a wave of zero deforestation commitments from other consumer products companies,
PepsiCo committed through the Roundtable for Sustainable Palm Oil4 (RSPO) in 2010 to source
exclusively 100% RSPO certified sustainable palm oil by 2015.
Conflict Palm Oil posed an ethical dilemma for PepsiCo which bought approximately 470,045 metric
tonnes of palm oil annually, making the company the biggest purchaser of palm oil worldwide.5 Several
environmental groups criticized PepsiCo for selling its popular products like Doritos and Lays, which
were not covered by the commitment to use responsible palm oil, at the expense of the environment.
PepsiCo was one of the “Snack Food 20”6 group of companies targeted by RAN’s Conflict Palm Oil
campaign for its inadequate palm oil policy. The group repeatedly called on PepsiCo’s CEO Indra
Nooyi (Nooyi) to go on record about her company’s continued use of palm oil. According to RAN,
PepsiCo’s commitment to sourcing sustainable palm oil was weak and it should adopt and implement
a responsible palm oil procurement policy. With mounting pressure, PepsiCo announced a new Forest
Stewardship Policy and Palm Oil Commitment in May 2014. Though in the new policy PepsiCo
included measures which it claimed went beyond RSPO standards, it failed to guarantee that its entire
supply chain would be free from deforestation and social conflict. Meanwhile, several campaigns were
launched by environmental activists that targeted specific brands of PepsiCo over the palm oil issue
making it a PR nightmare for the company.
Following months of protests from several environmental groups, PepsiCo came out with a revamped
palm oil commitment in September 2015. Though the new commitment identified the company’s
sources of palm all the way back to the plantation and addressed workers’ rights, it did not cover any
joint venture in which PepsiCo had a minority stake. Environmental groups were disappointed with the
changes in the new commitment and said PepsiCo continued to fail to take responsibility for the impact
of its products sold globally. Given the size and impact of its business, PepsiCo was expected to play a
huge role in the problematic global production of Conflict Palm Oil. PepsiCo, however, insisted that its
policy was strong enough. But criticism of the company grew more strident and PepsiCo was projected
as a “Conflict Palm Oil laggard.” This put the brands and corporate reputation of PepsiCo at serious
risk. According to Ginger Cassady, Forest Program Director at RAN, “Reforming the palm oil sector is
not an easy task. Real change will only be achieved if PepsiCo invests the time and resources to
implement innovative solutions that address the depth, scope, and urgency of the problems currently
caused by palm oil production in its supply chain. My question for you Ms. Nooyi is will PepsiCo
commit to necessary revisions to its policies, and invest the resources needed to eliminate Conflict Palm
Oil from the global palm oil supply chain?”7
ABOUT PEPSICO
PepsiCo, headquartered in Purchase, New York, USA, was a global food and beverage company. Its
products are sold in more than 200 countries and territories around the world. Its portfolio included 22
brands that each generated more than $1 billion in estimated annual retail sales. For the year 2014,
PepsiCo had total revenues of $66.68 billion and net profit of $6.51 billion (see Exhibit 1).
The origins of PepsiCo date back to the late 19th century when a young pharmacist Caleb Bradham
(Bradham) started selling a refreshing drink called “Brad’s Drink” in his pharmacy. The drink was later
renamed Pepsi-Cola, and went on to become a key challenger to rival brand Coca-Cola. In 1965,
PepsiCola merged with Frito-Lay8 to form PepsiCo Inc. In the subsequent years, the company reshaped
its portfolio, built new capabilities, invested in new geographies, and went on to become a key player
in the global beverage market along with the CocaCola Company (Coca-Cola).
In the new millennium, PepsiCo decided to focus on its packaged foods business to effectively compete
with Coca-Cola. It also acquired Tropicana, the world’s biggest producer of branded juices, in July
1998. Other steps taken by PepsiCo included hivingoff its bottling operations into a separate new
company called the Pepsi Bottling Group (PBG). The company’s restructuring efforts paid off and its
operating profits rose from $ 2.58 billion for the year 1998 to $ 3.23 billion in 2000. In December 2005,
PepsiCo overtook Coca-Cola in market capitalization for the first time as its market value reached $98.4
billion, compared with $97.9 billion for Coca-Cola. Analysts attributed the company’s growth to a
diversified product portfolio and a strong marketing strategy.
As of 2014, PepsiCo was one of the world’s leading food and beverage companies that marketed,
distributed, and sold a wide variety of beverages, foods, and snacks to customers in more than 200
countries. The company owned a global portfolio of diverse brands, and of them, 22, including Pepsi,
Lays, Quaker, Tropicana, Aquafina, and Gatorade, generated more than $1 billion each in annual retail
sales. The company operated through six segments—Frito-Lay North America (FLNA), Quaker Foods
North America (QFNA), Latin America Foods (LAF), PepsiCo Americas Beverages (PAB), PepsiCo
Europe (Europe), and PepsiCo Asia, Middle East and Africa (AMEA). In 2014, the company generated
more than $66 billion in revenues.
However, the growth in the company’s business led to more controversies dogging its operations. The
company faced criticism from environmentalists regarding the effect of its operations on the
environment. Its beverage products were packed in plastic bottles and tin cans, which the environmental
activists alleged, could cause environmental pollution. The company was also criticized for the contents
in its snack and beverage products, which were blamed for leading to an increase in health problems
like obesity and diabetes.
In the face of growing criticism, PepsiCo started to focus more on sustainable development practices
worldwide. It started a new sustainable development program in 2009 with a five-year mission
“Performance with Purpose.”
“Performance with Purpose”
Faced with environmental and social criticism, in 2009, PepsiCo started an ambitious new sustainable
development program called “Performance with Purpose” under the leadership of Nooyi, who took
charge as CEO in 2006. India-born Nooyi was a graduate of Madras Christian College in Chemistry,
Physics, and Mathematics, a management graduate from the Indian Institute of Management, Calcutta,
and Master’s in Public and Private Management from Yale. After stints with companies such as ABB,
Johnson and Johnson, and Management consulting firm, Boston Consulting Group, she joined PepsiCo
as the chief strategist in 1994. She served as the Senior Vice-President of Strategic Planning and
Development and Chief Financial Officer of PepsiCo before becoming the CEO.
The “Performance with Purpose” mission was based on the belief that the financial performance of the
organization must go hand-in-hand with its responsibilities toward society and the environment. The
declaration by PepsiCo called the “The Promise of PepsiCo” had 47 commitments which were to guide
the organization over the following decade. The “Performance with Purpose” contained both promises
made to its shareholders for providing good financial returns and the promises made toward the society
and environment. In its promise to shareholders viz. “Performance,” PepsiCo vowed to deliver superior
and sustainable financial performance, to maximize their wealth. PepsiCo’s responsibilities toward the
society and the environment were broadly categorized into three areas viz. Human Sustainability,
Environmental Sustainability, and Talent Sustainability.
Human sustainability referred to the efforts put in by PepsiCo to meet the different nutritional needs of
the people. Environmental sustainability focused on protecting the environment and reducing PepsiCo’s
reliance on natural resources and conserving them for future generations. It also focused on mitigating
the impact of its operations on the environment. Talent sustainability focused on developing its
employees by building the skills required to meet its growth needs and making PepsiCo an attractive
target for the world’s best brains. Commenting on PepsiCo’s initiatives in sustainable development,
Nooyi said, “The talents and skills of our global workforce, coupled with our operational capabilities,
provide PepsiCo with a unique opportunity to have a positive impact on society. The goal of our
sustainable development journey is to operate as a force for bringing greater good to the world.”9
Under its environmental sustainability initiatives, PepsiCo promised to be a good citizen of the world
committed to protecting natural resources by proper use of land, energy, and packaging in its operations.
For the company, a large part of its sustainability efforts involved reducing the negative effects resulting
from the production and consumption of its products. This included “going green” through water
conservation and the reduction of waste products and reducing its carbon footprint. PepsiCo committed
to increasing its water use efficiency by 20% by 2015. In view of the protests that it was facing in
countries like India regarding its water use practices, it promised to strive for a positive water balance
in its operations where water was scarce. It also promised to use more recycled material in its packaging
operations to reduce environmental damage. PepsiCo committed to counter climate change by
improving electricity use efficiency by 20% by 2015, reducing the fuel used by 25% by 2015, reducing
the greenhouse gas (GHG) emissions from its operations, and applying on its farmed lands agricultural
practices that had proved to be sustainable. to counter climate change by improving electricity use
efficiency by 20% by 2015, reducing the fuel used by 25% by 2015, reducing the greenhouse gas (GHG)
emissions from its operations, and applying on its farmed lands agricultural practices that had proved
to be sustainable.
PepsiCo’s focus and the progress it had made on sustainable development gave it good results,
according to analysts. In recognition of the progress it had made till then on sustainable development,
PepsiCo was named as the top food and beverage company in the DJSI Food and Beverage Super sector
and included in the Dow Jones Sustainability Indexes for the year 2011.10 PepsiCo was the only
company based in the US to earn the top ranking in the 19 super sectors assessed. It was the third
consecutive year that PepsiCo had been named as the leader in the beverage sector. However, PepsiCo’s
successes on sustainable development didn’t make it impervious to controversy. Some environmental
activist groups continued to criticize its practices.
PALM OIL AND RAINFORESTS
Palm oil, obtained from the fruit of the oil palm tree (Botanical name Elaeis guineensis), was the most
widely used vegetable oil in the world and went into the processing of a wide array of food products
including cookies, chocolates, peanut butter, crackers, breakfast bars, potato chips, instant noodles,
baby formula, margarine, and dry and canned soups. Its non-food uses were in detergents, soaps,
personal care products, and as a feedstock for biofuels. The palm tree, native to Western Africa, was
grown mostly in the tropics. About 85% of palm oil was sourced from the tropical countries of
Indonesia, Malaysia, and Papua New Guinea (PNG) where rainforests mostly occurred (see Exhibit 2).
Over the years, the demand for palm oil had increased sharply as it was one of the cheapest vegetable
oils available on the global market with no trans fats. By 2013 the production of palm oil reached nearly
55 million metric tons and surpassed Soya oil to become the world’s most widely traded and used edible
vegetable oil. In the US, the consumption of palm oil grew rapidly, increasing nearly sixfold since 2000
to reach 1.25 million metric tons in 2012.11
However, the rising demand for palm oil led to large-scale deforestation across Southeast Asia (see
Exhibit 3). Rainforests were cleared to make way for palm oil plantations in nations with large tropical
forests such as Indonesia and Malaysia. This severely impacted the environment and the local
communities and led to the destruction of carbon-rich forests and peatlands. The large-scale oil palm
expansion between 1990 and 2010 resulted in direct forest loss of about 3.5 million hectares in total in
Indonesia, Malaysia, and PNG. In 2009, the Indonesian government announced plans to allocate
approximately 18 million more hectares of rainforests for palm oil cultivation.
Tropical rainforests covered about 7% of the earth’s surface and were vital to the ecosystem as they
nurtured about 50% of the world’s plants and animals. Indonesia’s tropical rainforests provided a
critical habitat to species including the highly endangered Sumatran tigers, elephants, and orangutans.
Deforestation threatened these species. As of 2014, only 60,600 orangutans remained in the wilds of
Indonesia’s Sumatra and Borneo islands. Palm oil production was a big contributor to climate change
as deforestation and drainage of carbon rich peatlands was carried out in Malaysia to make way for
palm oil trees that released sequestered carbon into the atmosphere as carbon dioxide, and contributed
to global warming.
The production of palm oil was also responsible for widespread human rights violations as palm oil
producing companies forcefully evacuated indigenous peoples and rural communities from their lands
and pushed them into forced and child labor. Rural communities in Indonesia, Malaysia, PNG, Liberia,
Cameroon, Latin America, and other rainforest regions often faced threats to their security and derived
marginal economic benefits by the expansion of palm oil production. A single palm oil plantation
destroyed the forest resources of thousands of Indonesians who relied directly on the rainforests for
their livelihoods, leaving entire forest communities in the grip of poverty. Moreover, irresponsible palm
oil practices affected the health and wellbeing of local people as burning of forests led to large-scale
forest fires, which were one of the main causes of the haze that caused both health impacts and
significant economic losses.
With widespread concern over large-scale destruction of forests for palm oil production, some
environmental groups wanted palm oil development to be shifted away from forests and peatlands to
degraded non-forest lands and other areas. These groups put pressure on major palm oil companies to
move new plantations away from forest lands and adopt better labor standards.
Round Table on Sustainable Palm Oil (RSPO)
In an effort to stop the tide of criticism against rainforest destruction and to get the sector to move
toward sustainable palm oil, the global palm oil industry created the Round Table on Sustainable Palm
Oil (RSPO) in 2004. The aim of RSPO was to promote the growth and use of sustainable palm oil. It
was a not-for-profit group that united stakeholders from seven sectors of the palm oil industry
comprising palm oil producers, processors or traders, consumer goods manufacturers, retailers,
banks/investors, and environmental and social non-governmental organizations (NGOs), committed to
produce, source, or use sustainable palm oil certified by the RSPO. As of 2015, RSPO had more than
1,700 members worldwide.
RSPO developed a set of environmental and social criteria which companies had to comply with in
order to produce Certified Sustainable Palm Oil (CSPO). Palm oil producers were certified after
accredited certifying bodies carried out a strict verification of the production process in accordance with
RSPO principles and criteria for sustainable palm oil production. All companies in the supply chain that
used RSPO certified sustainable oil products were audited to prevent overselling and mixing palm oil
with nonsustainable palm oil products. In case of infringement of the rules and standards, their
certificates could be withdrawn at any time.
With mounting pressure from green groups, many companies began to make public commitments of
their own to use deforestation-free palm oil in their products. Nestlé S.A and Unilever were two of the
first consumer packaged food companies to make deforestation free palm oil commitments. Following
this, PepsiCo too committed, through the RSPO, to source exclusively 100% RSPO certified sustainable
palm oil for its products by 2015. In 2013, it further strengthened this commitment to purchase 100%
Physical RSPO certified palm oil by 2020, giving additional visibility to its palm oil supply chain.
However, PepsiCo which used huge amounts of palm oil annually in its products was accused of lagging
behind in its efforts to source sustainable palm oil. In 2014, the company purchased approximately
470,045 metric tons of palm oil, which represented approximately 0.7% of the total global supply, for
its snack foods.14 It was alleged that PepsiCo’s products were made using palm oil grown in Indonesia
by some of the companies associated with the destruction of rainforests.
Rainforest Action Network (RAN)
RAN, a prominent environmental NGO based in San Francisco, California, had been working to protect
rainforests and the human rights of those living in and around those forests. Established in 1985, the
organization’s mission was to “campaign for the forests, their inhabitants, and the natural systems that
sustain life by transforming the global marketplace through education, grassroots organizing, and nonviolent direct action.”15 RAN played a key role in strengthening the rainforest conservation movement
globally by supporting activists in rainforest countries as well as mobilizing consumers and community
action groups through media campaigns, conferences, and publications.
With Conflict Palm Oil being one of the world’s leading causes of rainforest destruction and a major
driver of human induced climate change, RAN put pressure on some well-known food companies in
the world to get Conflict Palm Oil off the shelves. In September 2013, RAN launched a campaign called
“Conflict Palm Oil” to eliminate deforestation, human rights violations, and carbon pollution from the
palm oil supply chains of US snack food companies. As part of the campaign, RAN identified 20 major
global food manufacturing companies using Conflict Palm Oil. These included PepsiCo, Heinz,
Hershey’s, Kraft, and Smuckers. RAN felt that these companies, which it dubbed as the “Snack Food
20,” had the power to get involved with their global supply chains to transform the way palm oil was
traded and produced if they each adopted strong policies with clear public commitments and time-bound
implementation plans. According to RAN, the implementation of responsible palm oil policies by the
“Snack Food 20” companies would increase the demand for sustainable palm oil and drive a transition
to transparent and traceable palm oil supply chains.
To make these major food companies commit to using only traceable palm oil, RAN launched another
national campaign called “The Last Stand of the Orangutan: The Power Is in Your Palm.” As part of
the campaign, several RAN supporters wore orangutan masks and held signs displaying the logos of
the Snack Food 20 companies and banners reading, “Cut Conflict Palm Oil, Not Rainforests.” Lindsey
Allen, executive director of RAN, said, “In the 21st century, customers don’t want to buy crackers and
cookies that are responsible for pushing the world’s last wild orangutans to extinction and for horrifying
child labor violations. That’s why Rainforest Action Network is putting these top 20 snack food
companies using ‘conflict palm oil’ on notice.”
RAN singled out PepsiCo as a major Conflict Palm Oil laggard on the “Snack Food 20” list as it had
failed to put adequate policies and procurement practices in place, and was almost unquestionably using
Conflict Palm Oil. Despite being the world’s largest globally distributed snack food company and using
a whopping 457,200 metric tons of palm oil annually in snacks like Quaker Chewy Granola Bars,
Cheetos, and Lay’s potato chips, PepsiCo was dragging its feet, refusing to even admit to the problem,
said RAN. According to Gemma Tillack (Tillack), Senior Agribusiness Campaigner of RAN, “The only
thing standing in the way of PepsiCo doing the right thing and taking a leadership position on this urgent
issue is the company’s refusal to act. PepsiCo’s continued unwillingness to take responsibility for the
consequences of the palm oil in its supply chain is shocking. While more and more of its peers have
acknowledged the crisis created by Conflict Palm Oil production and engaged with experts like us to
adopt binding policies to root out the problem, PepsiCo continues to fry its chips and fill its products
with palm oil sourced from unknown plantations.”
According to RAN, PepsiCo had a weak palm commitment that lacked a time-bound implementation
plan to cut out Conflict Palm Oil. RAN felt that the RSPO certified palm oil certificates that were
awarded to companies for sustainable palm oil production by no means guaranteed that all of their palm
oil was being procured from sustainable sources. Though the RSPO provided criteria for CSPO and
offered certification, its standard did not adequately address the risks of purchasing palm oil associated
with deforestation and human rights violations, the group added. As a result, palm oil certified by the
RSPO while being more sustainable than conventional palm oil, was not deforestation free. RAN urged
PepsiCo to go beyond RSPO-certified palm oil and adopt a new global responsible palm oil procurement
policy and implementation plan to ensure that the palm oil in its supply chain was fully traceable, legally
grown, and sourced from verified responsible palm oil producers.
RAN pointed out to the reputational risk PepsiCo ran by sourcing Conflict Palm Oil. As more consumers
become aware of the dangers of palm oil production, PepsiCo had to break its ties to the drastic
deforestation and shocking human rights violations in its supply chain, especially in Indonesia and
Malaysia, where the risks of destroying critical rainforest and continued human rights abuses were
extremely high, it said (see Exhibit 4). RAN even offered to work with the company to find solutions
and draft a comprehensive, time bound responsible palm oil policy. “Palm oil is found in nearly 50
percent of the packaged foods on our grocery store shelves, and tragically it is also the leading cause of
orangutan extinction and rainforest destruction in Indonesia and Malaysia. PepsiCo and the Snack Food
20 can and must solve their problem with Conflict Palm Oil before it’s too late for the great red ape,”18
said Tillack.
However, PepsiCo refuted the allegations saying that it was a member of the RSPO, and had committed
to purchase exclusively 100% certified sustainable palm oil for PepsiCo products by 2015. The
company said it had integrated responsible palm oil procurement guidelines with its sourcing strategies.
“While we are working in a number of regions to convert to oils that are low in saturated fat, in some
parts of the world, palm oil is often our only option. When we do purchase palm oil, we look for
suppliers that operate responsibly and in a sustainable manner,”19 said Aurora Gonzalez, spokesperson
of PepsiCo.
PEPSICO’S PALM OIL POLICY
In March 2014, the Union of Concerned Scientists20 (UCS) released a scorecard grading the palm oil
sourcing commitments of 30 top companies in the packaged food, fast food, and personal care sectors
including PepsiCo. According to the report, PepsiCo, with a score of 33.7 points out of 100, had
demonstrated “little commitment” to procuring palm oil from deforestation-free sources.
Environmentalists demanded that PepsiCo should look into its palm oil policies and solve the Conflict
Palm Oil problem.
Following this, PepsiCo adopted a new Forestry Stewardship Policy and Palm Oil Specific Commitment
in May 2014, saying that it was an improvement over its 2010 and 2013 pledges which were limited to
using palm oil certified under the RSPO (see Exhibit 5). In its new policy, PepsiCo committed to
contributing to the promotion of responsible and sustainable sources of palm oil and realizing zero
deforestation in company-owned and operated activities and supply chain by 2020. As per the new
policy, the tons of palm oil sourced annually by PepsiCo would largely be free of deforestation and
peatlands conversion by 2016. Through its new commitment, the company planned to partner with the
RSPO and other trade associations, government agencies, non-governmental organizations, and other
critical external stakeholders to usher in positive changes and improvements in the palm oil supply
chain and industry. Analysts felt that the adoption of these commitments was a vital first step as it
validated PepsiCo’s commitment to set a higher standard than required by the RSPO. The new policy
stated: “As outlined in PepsiCo’s Forestry Stewardship Policy, PepsiCo is committed to doing business
the right way and to realizing zero deforestation in our companyowned and -operated activities and
supply chain. We recognize that PepsiCo has a responsibility to ensure that we and our suppliers operate
in accordance with applicable legal requirements and practice responsible forestry stewardship. PepsiCo
is opposed to illegal or irresponsible deforestation practices. While we are committed to the RSPO and
its process and standards, we recognize that in some regions of the world, additional measures may be
necessary.”
Following through on its 2010 commitment, the company planned to source palm oil only through direct
suppliers who were also members of RSPO. It planned to collaborate with governments and NGOs to
monitor its suppliers for compliance with its Forestry Stewardship and Land Use Policies, in order to
reach 100% traceability and accountability to the mill level by 2016 and to the farm/plantation level by
2020. Moreover, PepsiCo planned to support sustainable agriculture practices through the PepsiCo
Sustainable Farming Initiative. Workers would be encouraged to report grievances, violations, and
policy breaches through PepsiCo’s SpeakUp! hotline and website. The commitment also included
specific provisions on no conversion of high carbon stock forests and high conservation value areas or
peatlands. It wanted suppliers to adhere to free, prior, and informed consent (FPIC) in interacting with
local communities around new plantation development.
By 2016, the palm oil that PepsiCo sources through its suppliers would be:
 Sourced exclusively through suppliers who are members of the RSPO.
 Confirmed to have originated from responsible and sustainable sources.
 In compliance with the company’s Forestry Stewardship Policy, which includes adherence to the
following principles:
 Compliance with applicable legal requirements of each country in which it operates and from
which it sources.
 No further development on High Carbon Stock (HCS) Forests, High Conservation Value
(HCV) Forests.
 No new conversion of Peatlands.
 Adherence to the Free, Prior, and Informed Consent (FPIC) principles as defined and outlined
in the PepsiCo Land Use Policy.
In addition, PepsiCo would:
• Engage with appropriate industry and other groups to improve its understanding of deforestation
issues, adapt its policy, and achieve goals.
• Provide appropriate grievance mechanisms for suppliers to report suspected breaches.
• Leverage its Supplier Code of Conduct (SCoC) as a means of communicating PepsiCo’s Forestry
Stewardship Policy and associated commitments to its suppliers.
• Periodically report on its performance against this policy and its associated commitments
PepsiCo: Not Doing Enough?
Some environmental groups such as Greenpeace International22 (Greenpeace), RAN, SumOfUs.org23
(SumOfUs), and the UCS expressed concerns over PepsiCo’s new commitment. They felt that while
PepsiCo had acknowledged the problem related to Conflict Palm Oil, its commitments fell short in
several key areas as the sustainability measures adopted in the new action plan were weaker than the
ones adopted by its peers in the consumer packaged food industry. According to them, the commitment
was at odds with the company’s publicly stated values as had not taken any explicit efforts to trace palm
oil back to the source, to ensure that it was deforestation-free. In July 2014, the groups sent a joint
communication to Nooyi pointing out the gaps in the revised palm oil commitment and the need to fill
those gaps in order to drive the needed changes in PepsiCo’s global supply chains. “Palm oil is in many
of its products, from Quaker Oats to Grandma’s Homestyle cookies, PepsiCo’s announcement that it’s
joining so many other companies in improving how it sources palm oil is excellent news, but it could
do more to ensure that it is delivering on its promise,”24 said Calen May-Tobin, an analyst with UCS.
According to experts, the new policy lacked a time-bound implementation plan and failed to commit to
tracing the company’s palm oil to the plantations where the oil palm fruit grew. They said the new
commitments lacked independent third party verification of its suppliers’ compliance and a strong
commitment to full traceability and a prohibition of the use of fire. Moreover, the policy did not lend
clear support to small and local producers and failed to outline strong human rights protections for local
communities and workers, they added. According to Joao Talocchi, a campaigner at Greenpeace,
“While PepsiCo’s announcement includes measures that go beyond the RSPO, such as the protection
of high carbon stock forests and all peatlands, it still lacks a strong commitment to full traceability, a
demand for similar commitments from its suppliers, and most importantly, an implementation plan.
Consumer companies such as P&G, Unilever, and Nestle have already committed to policies that—if
fully implemented—will guarantee their products will become free from deforestation. There’s no
reason PepsiCo can’t follow suit.”
Some experts were skeptical about PepsiCo’s ability to source responsible palm oil within the
aggressive timeframe set by the company in its commitment. According to the new commitment, it
would source 100% of its oil from deforestation free sources by 2016. In 2013, PepsiCo had expanded
its palm oil commitment to cover 100% physically sourced oil by 2020. Reportedly in 2012–2013,
PepsiCo sourced 20% of its oil from RSPO certified sources and in the following year (2013–2014) the
number increased to 21%. Experts questioned whether the company would be able to get the remaining
79% of its oil from RSPO certified sources as there was only a year remaining for the company to fulfil
its commitment. They said the critical gaps in the commitment must be addressed first before the
company set a new global benchmark for responsible palm oil procurement. “Commitments are just the
first step. Pepsi Perfect might look great on a label, but it’s what’s inside the bottle that counts. When
it comes to palm oil, what counts is how commitments translate into action. And that is where some
major concerns about PepsiCo’s commitment crop up,”26 said Calen May-Tobin, a lead analyst with
the Tropical Forest and Climate Initiative. Hanna Thomas, senior campaigner at SumofUs, added, “We
hope that PepsiCo will take a look over their policies and the current gaps, and make the decision to be
a leader in their industry. It’s no good to just do the bare minimum. PepsiCo is such a large company
with such a huge amount of purchasing power, they should be out in front and taking the impacts of the
snack food industry seriously.”
However, PepsiCo felt it had done enough and said its new palm oil policy was part of a broader 2020
zero deforestation commitment across various commodities.
Consumer Campaigns
On May 20, 2014, a Global Day of Action to Cut Conflict Palm Oil was organized by Palm Oil activists
wherein a series of events were held across the world to call on PepsiCo and other companies in the
consumer food sector to cut down Conflict Palm Oil from their global product lines. Thousands of
people took part in demonstrations around the world as they gathered on college campuses, beaches,
public squares, and multiple PepsiCo factories to send a common message: “PepsiCo, the Power is
#InYourPalm to eliminate Conflict Palm Oil.” Also a petition was launched by SumofUs calling on
PepsiCo to commit to a zero deforestation policy for palm oil. More than 223,000 people from around
the world signed the petition.
In November 2014, PepsiCo pulled out its newly launched drink Pepsi True28 from online retail site
Amazon.com after environmental activists and consumers left thousands of negative reviews on the
product’s page urging the company to adopt better palm oil policies. The product was later reinstated.
However, PepsiCo said the outcry was a planned effort to mislead consumers and insisted that its palm
policy was strong enough. “Pepsi True was subject to an orchestrated effort to post inaccurate
information about our product and PepsiCo’s palm oil policy. A few critics have repeatedly been both
inaccurate and misleading about our commitments to traceable, sustainable palm oil. PepsiCo has
committed to zero deforestation in our activities and sourcing and to 100% sustainable palm oil by
2015. Our critics would be hard pressed to find many companies who have taken PepsiCo’s holistic
approach to land policy, forest stewardship. and responsible sourcing,”29 said a spokesperson from
PepsiCo.
However, environmental activists continued to press PepsiCo to cut Conflict Palm Oil from its supply
chain saying that the company could not hide the destruction that it refused to eliminate from its supply
chain (refer to Exhibit 6). “Clearly, any of us who have earned a one-star review would react with
consternation, so imagine the teeth grating at PepsiCo headquarters with 3,900 negative reviews rolling
in over the weekend. But with companies including Nestlé, Mars, and P&G among the other global
firms committing to sustainable palm oil, PepsiCo’s tepid policy is making it stand out for the wrong
reasons. Its competitors are committing to plans that include transparency, tractability, and full
safeguards for human rights. PepsiCo’s reputation, especially as consumers become more aware of the
dangers of palm oil, would be quickly repaired with a more watertight policy instead of continuing its
war of words,”30 remarked Leon Kaye, a strategic communications specialist.
On December 9, 2014, RAN and Orangutan Outreach31 together organized a Global Call-In Day
wherein consumers ranged against PepsiCo and pointed out the consequences of its using Conflict Palm
Oil. Through this initiative, the environmental groups wanted to expose the threat to the Leuser
Ecosystem.32 A month later, in January 2015, SumOfUs targeted PepsiCo’s Doritos snacks by
releasing an online ad to coincide with the Doritos “Crash the Super Bowl” competition that invited
customers to submit ads for the popular crisps with the winning ad being aired during the Super Bowl.
The ad titled “A Cheesy Love Story—The Ad Doritos Don’t Want You to See” featured a couple falling
in love over their common love for Doritos, getting married, then going off to a honeymoon to a tropical
rainforest. But on arrival there, they find the forest had been cut down to plant palm oil trees. Then the
tagline appears “Doritos, May contain traces of rainforest.” The organization felt that the Super Bowl
platform could be used to educate consumers the world over about PepsiCo’s inadequate palm oil
sourcing policy. The ad received more than 1.5 million views on YouTube.
Defending its palm oil policy, PepsiCo said, “It is no surprise that SumofUs’ continual
mischaracterizations of our palm oil commitments are patently false and run counter to the positive
reception our policies have received from expert organizations in this arena. PepsiCo has repeatedly
stated that we are absolutely committed to 100 percent sustainable palm oil in 2015 and to zero
deforestation in our activities and sourcing. This latest public relations stunt, focused on fiction rather
than facts, does nothing to foster positive dialogue or affect positive change. We find our policies
effective and stand by them.”
A day after the launch of the Doritos ad, RAN came up with another ad targeting PepsiCo’s popular
snack Quaker Oats Chewy Bars. The ad featured the photo of a little boy with his arms crossed in anger,
with a box of chewy bars in the background. The tagline of the ad was “Pepsico, you need a time out!”
The ad conveyed that PepsiCo was acting like a stubborn child—one who wanted all the toys (profits
in PepsiCo’s case) but no responsibility. Some activists also criticized PepsiCo’s #LiveForNow34
marketing campaign and wondered whether by “living for
now,” PepsiCo meant it could not care less about tomorrow.
They were referring to PepsiCo’s weak commitment to using
sustainable palm oil.
A Revised Commitment
Following months of protests from several environmental
groups over its use of Conflict Palm Oil, PepsiCo released a
new palm oil commitment on September 21, 2015 (see
Exhibit 7). Through its revamped policy, PepsiCo
strengthened its commitment to upholding the rights of local
communities and workers and identified the plantations
where the palm oil used in its products grew. However,
according to experts, the biggest loophole in the
commitment was that it did not cover any joint venture in
which PepsiCo had a minority stake. The policy did not
apply to PepsiCo products made by its Joint Venture Partner
(JVP), Indofood Sukses Makmur Tbk (Indofood),35 in
Indonesia.36 This implied that PepsiCo’s products sold in
Indonesia were not covered by any zero deforestation
commitment.
Indofood Agri Resources Ltd., the palm oil arm of Indofood,
was the third largest private palm oil company in Indonesia
with an annual revenue of USD 1.2 billion in 2014.37 The
company was involved in large scale production and
processing of palm oil with its plantations covering a total
area of 246,000 hectares in Sumatra and Kalimantan
(Borneo).38 Indofood was the only maker of PepsiCo
products in Indonesia. The company did not have a responsible palm oil policy. It was reportedly
involved in some questionable business practices, including deforestation through clearing and burning
rainforests, labor rights violations, and social conflicts with local communities. According to RAN, in
2013 and 2014, Indofood cleared 1,000 hectares of untouched tropical rainforest in East Kalimantan.
Apparently the company had used fire to prepare land for new plantations, as satellite images revealed
a burned area of nearly 200 hectares inside Indofood’s palm oil plantation in East Kalimantan. Moreover
going forward Indofood intended to develop 5,000 to 10,000 hectares of new palm oil plantations
annually.
PepsiCo’s palm oil sources globally would:
• Be sourced exclusively through direct suppliers who are members of the RSPO.
• Comply with the company’s Forestry Stewardship Policy, which includes adherence to the following
principles:
 Compliance with applicable legal requirements of each country in which it operates and from
which it sources.
 No further development on High Carbon Stock (HCS) Forests1 or High Conservation Value
(HCV) Areas.
 No new conversion of any Peatlands and the use of best management practices for existing
plantations on Peatlands.
•
•
•
Adhere to the principle of Free, Prior, and Informed Consent (FPIC)—as defined and outlined in
the company’s Land Use Policy.
Adhere to the Universal Declaration of Human Rights, be in basic compliance with applicable
laws, prohibit forced, compulsory or child labor, follow ethical recruitment practices, respect
freedom of association, recognize the rights of all workers including temporary, migrant, and
contract workers; and cooperate with reasonable assessment processes requested by PepsiCo.
In conjunction with the company’s support of RSPO’s standards, PepsiCo is committed to working
with governments, NGOs, suppliers, and other companies to ensure RSPO’s no burning policy is
realized through better monitoring and new technology
In addition, PepsiCo would:
• Achieve 100% traceability to the mill level for all its palm oil and palm kernel oil, and assess
suppliers’ operations and landholdings on PepsiCo’s Forestry Stewardship and Land Use Policies
and the principles of this commitment by 2016.
• Achieve traceability to the Farm/Plantation level of its palm oil and palm kernel oil by 2020.
• Request its palm oil suppliers to report on greenhouse gas emissions through the CDP Supply
Chain or similar program.
• Work with its suppliers to ensure that these policies are implemented in such a way that supports
the inclusion of smallholders
• Engage with appropriate industry and other groups to improve company’s understanding of
deforestation, forest conservation, indigenous and customary land tenure rights, human rights, and
labor rights issues in the palm oil industry, adapt our policy, and achieve its goals.
• Use an appropriate means of communicating PepsiCo’s palm oil commitments and associated
policies to its suppliers, such as the PepsiCo Supplier Code of Conduct (SCoC).
• Leverage the PepsiCo Sustainable Farming Initiative to support implementation of sustainable
agriculture practices that enable farmers to increase production on currently farmed land and
minimize impacts on the surrounding area.
• Support a confidential and safe process for investigating grievances raised by affected parties by
making the PepsiCo SpeakUp! hotline available, along with any supplier provided grievance
mechanisms, for the reporting of suspected breaches of this policy to PepsiCo. In instances where
outstanding land rights disputes exist in its supply chain, the company encourages its suppliers to
utilize the principles of FPIC to reach a resolution.
With Indofood being exempted from the new palm oil policy, environmentalists said every drop of palm
oil used to make PepsiCo products in Indonesia was at risk of having a negative impact on people and
the environment. Experts pointed out that PepsiCo’s palm oil commitment should apply to all suppliers
selling palm oil that was used to make PepsiCo branded products sold globally, not just the products
made in PepsiCo’s own facilities. “Rainforest Action Network is disappointed that PepsiCo continues
to fail to take responsibility for the impact of its products sold globally. PepsiCo has a huge role to play
in the highly problematic global production of Conflict Palm Oil, but will continue to accept ‘business
as usual’ operations from its suppliers, including Indofood. With this action plan, PepsiCo has failed to
set a deadline for breaking the links between its products and companies that are destroying rainforests
and peatlands, and abusing human and labor rights. Instead, its action plan reconfirms to only source
physically certified palm oil by 2020—a deadline out of step with what is needed,”39 said Tillack.
According to RAN, PepsiCo’s new palm oil commitment had a loophole the size of Indonesia and failed
to address the fundamental problems of rainforest destruction. In order to earn the trust of customers,
PepsiCo must close this loophole and take action to clean up its supply chain, including the operations
of Indofood, the group added. “A company earns trust from its consumers not only by making quality
products, but by being honest and transparent in its actions [. . .]. If it (PepsiCo) is not forthright about
the bounds of its palm oil commitment it risks serious damage to its credibility. After all, trust is like a
mirror, difficult to build, easy to break,”40 said Calen May-Tobin, a lead analyst with the Tropical
Forest and Climate Initiative.
With palm oil being Indonesia’s most valuable agricultural export, the Indonesian government opposed
zero-deforestation pledge by some palm oil firms. Though the Indonesian government acknowledged
the problem of widespread deforestation, it was reported to have asked major palm oil companies to go
back on their deforestation pledges they had made in 2014 as it was concerned that the pledges made
by the companies were causing big problems for smaller palm oil firms in their supply chain. Moreover,
the government had asked palm oil firms which had signed the Indonesian Palm Oil Pledge (IPOP)41 to
exempt small holders because it felt that they were not yet ready to achieve the same level of sustainable
forest practices as the big players. Some environmental groups reported that Indonesian government
was advising some big palm oil companies to water down their stance by urging them to continue to
buy palm oil from their suppliers, even if that company was involved in cutting down forests for new
plantations. Allegedly the pressure from the national government came after local governments in
Indonesia began taking away concessions from palm oil companies which tried to convert palm oil
plantations into conservation forests.
THE ROAD AHEAD
In April 2015, UCS came out with a revised scorecard, ranking companies based on their commitment
to deforestation free palm oil. The score of each company was recalculated to account for their progress
compared to the previous year. As per the scorecard, in 2015, PepsiCo made remarkable progress on its
commitment to source deforestation free palm oil compared to the previous year, by scoring 80.7 points
out of 100 (see Exhibit 8). Environmentalists attributed the growth to the new Forestry Policy and the
palm oil commitment made by the company in 2014 that improved transparency and traceability in its
supply chains. They pointed out, however, that though PepsiCo had been successful to some extent in
sourcing sustainable palm oil as was evident from the scorecard, it did not guarantee that its supply
chain was completely free of Conflict Palm Oil (see Exhibit 9). According to UCS, “PepsiCo talks a
good game, but the Union of Concerned Scientists (UCS) is skeptical about PepsiCo’s ability to follow
through on its commitment. The UCS scorecard is based on commitments to buying only deforestationfree palm oil, which is just one issue associated with palm oil production. Just because we gave the
company a passing grade does not give PepsiCo a free pass on human rights, health, or other
environmental issues. This is akin to getting a B- in English, but failing math, science and geography.
One passing grade does not make a star student.”
UCS Scorecard untuk Komitmen pada Sumber Minyak Sawit
Berkelanjutan oleh Perusahaan Makanan dalam Kemasan, 2014–2015
UCS Scorecard untuk Sumber Aktual Minyak Sawit
Berkelanjutan oleh Perusahaan Makanan dalam Kemasan, 2014-2015
As the global demand for palm oil continued to grow, tropical forests across Southeast Asia, Africa,
and Latin America were at risk of being converted into large-scale palm oil plantations. In 2012,
Indonesia reportedly lost 840,000 hectares (3,250 square miles) of forest while Brazil lost a still more
massive 460,000 hectares43 to palm oil plantations. In 2015, Indonesia continued to lead the growth
in global palm oil supply, contributing about 32.7 million tonnes from its palm areas.44 According to
observers, with palm oil demand set to double by 2030, the sourcing of sustainable palm oil would
become a critical issue.
Going forward, PepsiCo planned to step up its efforts to source responsible palm oil by understanding
its supply chain, confirming the location of the plantations from which it sourced its palm oil, and
independently verifying that the suppliers were not involved in deforestation or violation of human
rights in any of their operations. The company planned to map the supply chains of its suppliers to
ensure that the palm oil it received came from responsible and sustainable sources and was also in
compliance with the company’s Forestry Stewardship Policy and Land Use Policy.
Industry observers felt that PepsiCo had a crucial role to play in eliminating Conflict Palm Oil from food
supply and that the company should strengthen its palm oil policies and practices and commit to
sourcing exclusively from suppliers with traceable, transparent, verified, and accountable supply
chains across all operations. Some analysts said the company should step up and break the link
between its products and the factors responsible for the destruction of rainforests in order to dismiss
customer concerns. It should start taking the palm oil issue seriously and use its buying power to drive
real change on the ground, they added. They also pointed out that the Conflict Palm Oil problem was
not an easy one to solve. According to Sasha Orman, Editor of FDF World,45 “But with palm oil such a
critical issue right now, does PepsiCo’s commitment go far enough to enact change? Not everyone is
100 percent convinced yet. The Union of Concerned Scientists (UCS) published a critique raising
questions about the wording of PepsiCo’s plan, noting that—while much of it is solid and promising—
it only appears to apply to fully PepsiCo-owned lands and operations. Will the company’s joint venture
projects covered by the Forestry Stewardship Policy? With that said, it is not certain one way or
another yet whether PepsiCo will hold its joint ventures to the same sustainability standards as its
fully-owned projects. But in a case like this, PepsiCo’s actions down the line will speak for themselves
and reveal the full extent of the company’s commitment.”